Provisions and Contingencies Scenario 1 Fact: Energy Inc. (Energy, or the Company), which operates in the oil industry, is a U.S. subsidiary of a U.K. entity that prepares its financial statements in accordance with IFRS and U.S. GAAP. A draft law in a country where Energy operates in, which requires a cleanup of land already contaminated, will possibly be enacted shortly after the year-end. Issues: Should Energy recognize a provision, (i) in reporting under IFRSs, and (ii) in accordance
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after year-end. Environmental Loss Contingencies 410-30-05-25 Although environmental remediation liabilities is not one of the examples discussed in paragraph 450-20-05-10, environmental remediation liabilities are loss contingencies, and the discussion in paragraphs 450-20-55-10 through 55-17 can be useful in understanding the requirements of Subtopic 450-20 as they relate to environmental remediation liabilities. SFAS No. 5 Accounting for Contingencies INTRODUCTION 1. For the purpose
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criticized the original dislosure requirements of loss contingencies: “a.The initial disclosure of specific information about a loss contingency often does not occur until a material accrual is recognized for that loss contingency, sometimes taking investors by surprise. b. The at least reasonably possible threshold for disclosing loss contingencies has not resulted in the disclosure of the full population of an entity’s existing loss contingencies that would be of interest to financial statement users
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As a result, according to IAS 37-14, Energy Inc. should recognize a provision in reporting to its U.K. parent under IFRSs and based on ASC 450-20-25-2, a provision needs to be recognized in reporting to its U.S.-based lender in accordance with U.S. GAAP as of December 31, 2011. However, in the case that Energy Inc. cannot reasonably estimate the cost of the cleanup, a provision should not be recognized but disclosed provision in reporting to its U.K. parent under IFRSs and U.S.-based lender in
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Case 9-4 How should NeedsSpace account for the two obligations noted as provisions in the lease agreement? ● Provision 1: “Lessor may require the lessee to perform general repairs and maintenance on the leased premises.” By entering the lease agreement, NeedsSpace (the lessee) becomes legally and contractually responsible for performing general repair and maintenance on the leased premises. Assuming that the lessee is required to make deposits to financially protect the lessor concerning
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Current Liabilities and Contingencies Current Liabilities IAS 1, Presentation of Financial Statements, requires liabilities to be classified as current or noncurrent. Current liabilities are those liabilities that a company: a. expects to settle in its normal operating cycle, b. holds primarily for the purpose of trading, c. expects to settle within twelve months of the balance sheet date, or d. does not have the right to defer until twelve months after the balance sheet date.
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Energy Inc. Date: February 15, 2013 Prepared by: Christiana Egwakhe Reviewed by: Professor Robert Elya ISSUE: Accounting for loss provisions under the different fact patterns. BRIEF BACKGROUND Energy Inc. (Energy), a Public Company, operates in the oil industry. Energy’s operations sometimes result in soil contamination. Energy cleans up this contamination when required to do so under the laws of the particular country in which it operates. Energy Inc. has a widely published environmental policy
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order to recognized a loss contingency, two of the following conditions have to be met; information available before the financial statements are issued or are available to be issued indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and the amount of loss can reasonably be estimated. Since eVade considers the risk of detection to not be probable, there is no need to make any provision as of December 31, 2011. However
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Brief Summary Needspace entered a operating lease with WeHaveIt for 10-Year Lease term.Lease agreements have certain provisions depending on how the contract is written by the lessor to the lessee and what type of lease agreement. In this lease agreement we are focusing operating lease with provisions of NeedSpace and WeHaveIt, which has a 10 year lease term, no options to renew or negotiate renewal offered in the contract and the lessee incurs certain cost, repairs and maintenance. In regards to
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2013: 853 million euros 2012: 750 million euros Yes, transactions would be similar under U.S. GAAP. C2. Read the note for “provisions for liabilities and charges.” a. Do the beginning and ending balances of total liabilities and charges shown in the note for the fiscal year tie to the balance sheet? By how much has the total amount of the BA’s “provisions for liabilities and charges” increased or decreased during the fiscal year? Is the threshold for recognizing a liability associated
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